Industrial Revolution: 1816-1860

The Industrial Revolution, which began in north Europe in the late 18th century, had quickly spread to the United States by early 19th century and gained speed following the War of 1812. The Whig Party, with the assistance of leading politicians including Henry Clay and John Quincy Adams, advanced a political philosophy of federalism where sovereignty was constitutionally divided between a central governing authority and constituent political units (i.e. states). Closely related was an economic philosophy championed by Henry Clay which he termed the “American System.” This combination led to a number of policies designed to strengthen and unify the nation.

The most important tenets included:

• Support for a high tariff to protect American industries and generate revenue for the federal government;
• Maintenance of high public land prices to generate federal revenue;
• Preservation of the Bank of the United States to stabilize the currency and rein in risky state and local banks;
• Development of a system of internal improvements (such as roads and canals) which would knit the nation together and be financed by the tariff and land sales revenues.

Portions of the American System were enacted by the United States Congress. The charter of the Second Bank of the United States was renewed in 1816 for 20 years. High tariffs were maintained from the days of Alexander Hamilton until 1832. Millions of settlers moved to the more fertile farmland of the Midwest, partially encouraged by government-created national roads and waterways, such as the Cumberland Pike (1818) and the Erie Canal (1825).

Other Whig-sponsored improvements were frustrated by the Democratic Party and most notably, President Andrew Jackson (1829–1837), who vetoed a bill in 1830 allowing the Federal government to purchase stock in a road company which had been organized to construct a link between Lexington and the Ohio River in the state of Kentucky. Jackson also opposed the Second National Bank, which he believed favored the interests of his political opposition. After a political struggle, Jackson succeeded in closing the Bank by vetoing its re-charter passed by Congress and withdrawing U.S. funds in 1833.

The bank’s functions were absorbed by local and state banks which also became the beneficiaries of U.S. funds. This led to an expansion of credit and speculation. At first land sales, canal construction, cotton production and manufacturing boomed. However inflation resulted. because these banks issued paper banknotes that were not backed by gold or silver reserves. In 1836, Jackson issued the Specie Circular, which required buyers of government lands to pay in specie (gold or silver coins). The result was a great demand for specie. Unfortunately, many banks did not have sufficient gold and silver reserves to exchange for their notes, which led to their collapse, spawning the Panic of 1837 and a depression. Of the 850 banks in the United States, 343 closed, 62 partially failed and the State bank system never fully recovered. Interestingly, Jackson was the only President in history to have virtually retired the national debt during his term, having reduced it to $33,733.05, the lowest since the first fiscal year of 1791. This accomplishment was short lived as falling economic activity caused by the Panic led to budget deficits.

The Panic of 1837 as well as other recessions did not curtail rapid U.S. economic growth. Long term demographic growth, expansion into new farmlands and creation of new factories continued. New inventions and capital investment led to the creation of new industries and economic growth. As transportation improved, new markets continuously opened. The steamboat made river traffic faster and cheaper but development of railroads had an even greater effect, opening up vast stretches of new territory for development. Like canals and roads, railroads received large amounts of government assistance in their early years in the form of land grants. Unlike other forms of transportation, however, railroads also attracted a good deal of domestic and European private investment. Railroads led to the creation of large-scale business operations which created a blueprint for large corporations to follow. They were the first to encounter managerial complexities, labor union issues and problems of competition. These innovations, considered radical at the time, combined with the discovery of gold which added to America’s public and private wealth, enabled the nation to develop a large-scale transportation system creating a base for the country’s industrialization.

By 1860, 16% of the population resided in cities of at least 2,500 and a third of the nation’s income came from manufacturing. Urban industry was concentrated in the Northeast with cotton cloth production as a leading industry. The urbanization and industrialization was fed by immigrant labor that originated in Europe. An estimated 300,000 immigrants arrived annually between 1845 and 1855. Most were poor and remained in eastern cities, often at ports of arrival.